Construction Costs Dip for the First Time in a Decade
Just last month, we discussed that measures of construction activity based on construction worker hours were beginning to resemble pre-COVID-19 levels across the country. This finding was based on June 2020 insights collected by Procore and the Associated General Contractors of America (AGC). Among various other factors like warm summer weather, we largely attributed this trend to stay-in-place orders and workplace safety requirements effectively inhibiting the spread of the virus on construction sites. Today we’ll be discussing the Second Quarter 2020 Turner Building Cost Index, which found that costs in the U.S. nonresidential building construction market dipped in value for the first time in a decade.
If you are in need of construction-related legal assistance, remember that a Dade County construction attorney from Cotney Attorneys & Consultants is always here to assist you.
Competition and Demand
The Second Quarter 2020 Turner Building Cost Index decreased to a value of 1177, which represents a 1.01 percent quarterly reduction from the First Quarter 2020 Index. The Building Cost Index is determined based on a number of factors, including productivity, labor rates, material prices, and competitive condition of the marketplace. Attilio Rivetti, the Turner Construction Company vice president responsible for compiling the Cost Index, said the following in a press statement:
Trade contractor competition has increased in many areas as they work to secure backlog due to uncertainty they have about future opportunities. We expect the third quarter will serve to more clearly define the fluctuation of escalation of cost in the construction industry.
The Associated Builders and Contractors’ Chief Economist Anirban Basu has since echoed similar sentiments regarding the impact of COVID-19 on competition in the construction industry. The average contractor is presently more concerned about the demand for their materials or labor rather than labor shortages or disruptions to the supply chain. As more companies than usual choose to bid on available projects, construction prices will continue to drop.
What Can We Expect to See Over the Next Six Months?
Predicting what will occur over the next six months can be tricky, especially given the uncertain nature of the pandemic. Fortunately, for now, it appears that the trend of decreasing construction prices is consistent with other research findings that predict a rise in sales alongside a drop in profit margins. This is, of course, partly contributed to a decline in certain material costs as well. Presently, as Attilio Rivetti said, officials are expecting the third quarter to serve as a better indicator of the fluctuation of cost in the industry.
Nearly two in five contractors expect a sharp decline in profit margins over the next six months, and fewer than one in three expect these margins to rise. This is vastly different from even a year ago when less than one percent of contractors expected a drop in margins. For a group of Dade County construction attorneys with real-world experience and a pragmatic approach to navigating the construction industry who will represent and defend you in a wide variety of legal matters during these times of uncertainty, choose Cotney Attorneys & Consultants.
If you would like to speak with one of our Dade County construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.